The only certainty about our future global business environment is uncertainty, turning strategic planning into a problematic gamble. Dr Andrew Coburn, CEO of Risilience, sets out the business and sustainability trends that CFOs need to plan for in the next 12-24 months and the best steps to address the challenges.
As climate change, geopolitics, investor and regulatory pressure, a skills shortage and the global energy crisis continue to shape an already-challenging business environment, strategic planning for the future is mired in uncertainty.
Business leaders focussed on growing their products and services face a range of unprecedented pressures and challenges that threaten revenues. The current global transition to a low-carbon economy requires many large organisations to recalibrate their business models. Implementing change on this scale demands considerable investment and is strategically risky; impacting supply chains, product mix, operations and investment strategies.
Much of the burden associated with decision-making around investment and divestment falls to the CFO and their team but how can informed and effective decisions be made when the global business environment is in constant flux?
Plan for change
The first step to take is to recognise the need to plan for change, even without knowing exactly what those changes will be. Horizon-scanning is key and must remain a continuous exercise to consider the events and changes that could have the greatest consequences for businesses.
Making efficiency gains requires knowing where the best returns on investment are within the business operation. Many organisations are looking to restructure supply chains disrupted by geopolitical shocks and other constraints, including increasing regulation.
Our work with large global organisations with complex supply chains applies analytics to help them quantify climate and enterprise risk. We are seeing organisations restructuring in various ways to find efficiency gains. These include examining product portfolios and the services they provide to see how they might play out in a number of new economic forecasts around a low-carbon future – which could bring a lot of potential upsides for businesses prepared to meet these opportunities.
Prepare for more regulatory change
The private sector is increasingly expected to take responsibility for its contribution to climate change and also disclose how climate will impact a business. This burden often lands with the office of the CFO and is about to get bigger. Organisations getting to grips with Task Force on Climate-related Financial Disclosures (TCFD) reporting will, come September 2023, be expected to address Task Force on Nature-related Financial Disclosures (TNFD) reporting that requires biodiversity risks and opportunities to be understood and communicated. This regulatory responsibility is there to force finance teams to really think about the business strategy and will see data platforms becoming an increasing function of the office of the CFO in the foreseeable future.
Call for sustainable products and ethical stewardship
There is a very strong signal from consumers and society demanding sustainable products and ethical stewardship of resources. This is driving the re-positioning of some large organisations to become ethical stewardship environments where talented and highly-skilled people want to work. This change will see organisations engaging in different practices, such as recycling, to create products and services that are part of a business circularity model, and will be more challenging for some sectors, such as apparel, than others.
Respond to the technology-driven information revolution
Managing vast quantities of data to optimise strategic business decision-making is a necessary skill required by the information revolution that is driven by emerging technology.
Our approach to supporting large organisations to develop and understand the cost benefit justifications for transition plans towards net zero includes developing a digital twin of the business. This digital representation includes the entire value chain from supply all the way to market and enables a company to really understand how much they need to invest in and respond to the various external factors they are encountering. It also enables them to stress-test their strategic decision-making through scenario planning.
Gathering and managing all of the data required to complete this task is complex but tools, such as AI, can help to build algorithms to knit datasets together to create a view of the entire value flow of the business. The CFO can then use the digital twin as a master command and control to look at investment processes and cost controls across different areas affected by decarbonisation. At present, about 40 per cent of companies have made a net-zero commitment and we’re expecting that to rise to 80 per cent by the end of next year, precipitating radical change in many large businesses.
Having the agility to respond to the information data provides is also key. We work with some companies that have honed this skill to perfection. Businesses that can adapt the information systems to give early-stage feedback and respond accordingly are experiencing success. The big brands that are currently successful are masters of data analysis.
Stress test decision-making
There is no doubt in my mind that we will see increased volatility in the external environment over the next year or two. However, in our data-abundant age there is a huge amount of information that can be used and harnessed to stress test business decisions and enable an organisation to flourish in a sustainable, net-zero economy.
• Dr Andrew Coburn was part of the webinar panel for The next 12-24 months: what business and finance trends you need to be aware of – hosted by The CFO magazine. Sign up to register for the webinar on demand: https://the-cfo.io/events/webinar-the-next-12-24-months-business-and-finance-trends-for-cfos/
• Learn more about Risilience at https://risilience.com/about/
N.B. The information contained in this entry is provided by the above supplier, and does not necessarily reflect the views and opinions of the publisher